Since January, oil production cuts by the Organization of Petroleum Exporting Countries have subtracted 2.5 million barrels a day from the world’s oil supply, the International Energy Agency (IEA) has calculated.

Although those cuts have been largely offset by increased output from Brazil and the U.S., the world’s oil supply is likely to fall short of demand by 1.1 million barrels a day in this year’s final quarter, the IEA warned.

Oil demand in 2023 overall will be 101.8 million barrels daily, 2.2 million more than last year.

As a result of scarce supplies, prices probably will be volatile in this year’s final three months, the agency said.

Because the cuts have come during a time of rising demand, the world’s oil inventory fell by 76.3 million barrels in August, reaching a 13-month low. 

“The Saudi-Russian alliance is proving a formidable challenge to oil markets,” the IEA wrote in its monthly report.

In 2024, “oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers or consumers, given the fragile economic environment,” the report added.

The cuts Russia and Saudi Arabia have made are only firm until the end of this calendar year. If the cuts expire, the oil market will bounce back to a surplus, the IEA expects.

Daily demand will increase again next year, but only by one million barrels as more drivers shift to electric vehicles and China’s post-COVID economy remains muted. Still, China will account for three-quarters of that million-barrel increase in daily demand next year, the IEA predicted.

TREND FORECAST: As we have said in articles such as “OPEC+ Slashes Daily Oil Output Limit by 1.16 Million Barrels” (4 Apr 2023) and “OPEC+ Refuses to Pump More Oil Despite Shortage, Soaring Prices” (8 Mar 2022), OPEC+, led by Saudi Arabia, sees its markets diminishing in the future as the world transitions to non-fossil fuels and to plastics made from feedstocks other than petroleum.

We have documented these shifts in articles such as “Petroplastics Out, Pectin Plastics In” (12 Jan 2021) and “Oil Demand Will Stagnate in Next Five Years, IEA Predicts” (20 June 2023).

In response to global economic shifts, OPEC+ will continue to tweak oil prices to maximize the profits it can still extract from a resource that will see demand shrink in the coming decades.

However, the cartel may have overplayed its hand: oil’s price is within reach of $100 a barrel, but the world economy was slowing already while Brent crude was still trading below $80.

The global economy is unlikely to break out in robust recovery in the near term. Therefore, should the economy go down, we forecast OPEC+ will keep cutting back supply to meet low demand as they did when the Panic of ’08 crashed the global economy.